Fall 2011

Fall 2011

Cislo & Thomas Awarded Over $250,000 in Attorney Fees Defending Copyright and Trade
Dress Claims in California
Kim Seng Co. accused J & A Importers, Inc. (a Cislo & Thomas client) of copyright and trade dress infringement regarding Asian noodle packaging. Kim Seng Co. v. J & A Importers, Inc., Case No. CV10-742 CAS (C.D. Cal.). In the registered copyright claim, Kim Seng asserted that J&A’s supplier used Kim Seng’s copyrighted photograph on its packaging. J&A filed for summary judgment, and defeated all of Kim Seng’s claims. The Court found that Kim Seng did not have a valid assignment of the photograph copyright from the photographer, and thus did not own the copyright. The Court also found the unregistered trade dress to be descriptive, and that Kim Seng had insufficient evidence of secondary meaning to prove its trade dress claim. Based on the objective unreasonableness of the copyright claims, the Court awarded J&A over $250,000 in attorney fees. The major lessons from this case include:

(1) Copyright owners should obtain written assignments for all elements of a copyrighted work. This includes photographs, graphics, and text that are authored by others and incorporated into the final work.

(2) Register copyrights early. If a copyright is registered within five years of first publication, the registration puts the burden of proving copyright invalidity on the accused infringer. In addition, registering the copyright within three months of the first publication entitles the owner to statutory damages for all infringements that commenced prior to registration, a potent weapon.

(3) To the extent that a company seeks to rely on unregistered trade dress protection, it should always be prepared to show evidence of secondary meaning (AKA acquired distinctiveness), which can include: evidence showing the duration, extent and nature of the use of the trade dress, advertising expenditures in connection with such use, letters or statements from the trade and/or public, or other appropriate evidence tending to show that the trade dress distinguishes the goods or services.

America Invents Act (Patent Reform) is Signed into Law
On September 16, 2011, President Obama signed the America Invents Act (“AIA”), the most significant patent reform in 60 years. The changes are to be implemented in three phases, with some changes implemented immediately, some in 12 months, and others in 18 months.

Foremost among the major changes is the conversion of the U.S. from a first-to-invent to a first-to-file country, which is, globally, the standard system. This will take effect on March 16, 2013. This change will eliminate the majority of disputes over which party first invented the claimed invention and will likely result in a “race to the patent office,” increasing application filings. Similar to current practice, there will be a one-year “grace period” for an applicant to file after their initial public disclosure. We would advise clients not to wait in order to avoid fights over what constitutes a “disclosure,” which is not explicitly defined under the AIA.

The AIA also changes the opposition procedures before the patent office. The AIA retains the existing ex parte reexaminations, adds preissuance submissions by third parties, expands inter partes reexamination (renaming it inter partes review) and adds post-grant review. All of these changes will be effective September 16, 2012. The biggest change will be post-grant review, as it will provide expanded bases to challenge a patent within nine months of patent issuance. Decisions are expected to take only 12 to 18 months, as opposed to the current pendency of about 36 months for inter partes reexamination decisions.

A number of other changes are included in the AIA but the regulations are still being written. We expect the changes to emerge and take effect over the next couple of years, as the regulations are implemented and the courts begin to develop case law (making clear their interpretation of the act) and regulations in particular circumstances.

Inequitable Conduct Standards Tightened for Patent Matters

“Inequitable Conduct” refers to a patent applicant affirmatively deceiving or failing to disclose material information to the Patent Office during prosecution of its application. It is a patent infringement defense, which can result in the patent being held unenforceable. Over the years, the Federal Circuit had relaxed the standards for proving inequitable conduct, to promote full disclosure of all material references during prosecution. Unfortunately, this had two adverse consequences. First, it created a scourge of inequitable conduct claims, such that the defense was invoked by nearly every accused infringer. Second, it encouraged wholesale dumping of references on the patent examiner, no matter how tangential, to avoid a claim of non-disclosure.

In Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011), the Federal Circuit tightened the standards for proof of the defense, making the requisite conduct knowing and willful. With respect to nondisclosure-type inequitable conduct, a defendant must show by clear and convincing evidence that the applicant knew of the allegedly withheld reference, knew of its materiality, and made a deliberate decision to withhold it. Negligence, gross negligence, or “should have known” will not suffice. The Court also appeared to relax the remedy a bit, stating that the “remedy imposed by a court of equity should be commensurate with the violation.” In the past, inequitable conduct would render the entire patent, and sometimes an entire family of patents unenforceable, whereas the Court appears to be suggesting that perhaps not all claims would be rendered unenforceable.

Patent applicants should still disclose all references that they believe are material to the patentability of the claims. Although Therasense may have increased the proof necessary to invoke the defense, there is no sense in trying to skirt the line during prosecution, only to find during later litigation that the line was not where the applicant thought it was.

Federal Circuit Further Defines Scope of Internet-Based Patent Claims

The Federal Circuit recently decided two cases regarding the patent eligibility of Internet related inventions under Section 101 of the Patent Act. In the first case, Cybersource Corp. v. Retail Decisions, Inc., the Court found the Internet-based invention ineligible for patent protection. In the second case, Ultramercial, LLC v. Hulu, LLC, decided one month later, however, the Court found the Internet-based invention patent eligible. The difference between the two cases appeared to be whether the inventive concept could be performed entirely in the mind.

In Cybersource, the patent-in-suit was directed towards a method of verifying the validity of a credit card transaction over the Internet. The steps involved obtaining information about transactions, constructing a map of credit card numbers, and utilizing the map to determine if a credit card transaction is valid. In ruling these claims patent ineligible, the Court determined that each of the steps could be performed entirely in the mind, and noted that even though the Internet could be considered a machine, the Internet was not required for the actual claimed steps.

On the other hand, in the Ultramercial case, the Court determined that a method claim for distributing copyrighted products over the Internet, where the consumer receives a copyrighted product for free in exchange for viewing an advertisement, was patent eligible subject matter. In contrast to Cybersource, the Court in Ultramercial found that Ultramercial’s claims required the use of the Internet and a cyber-market environment. In other words, the steps listed could not be performed entirely in the mind.

Federal Court in California Rules that Omega’s Use of Copyrighted Logo to Keep Out Lawful Imports is Improper
We have addressed the Omega v. Costco case several times in this newsletter. In 2003, Omega put a very small logo on the underside of its most popular watch, and registered a U.S. copyright for the logo. Costco legally purchased the watches from a legitimate Omega dealer overseas, and imported them into the U.S. Omega sued Costco for importing and distributing its copyrighted works.

Ordinarily, a purchaser of a copyrighted item can lawfully resell the item based on the first sale doctrine (also known as copyright exhaustion). Copyrights, however, are territorial in nature and the first sale abroad arguably did not “exhaust” the U.S. copyright. The 9th Circuit had decided in favor of Omega—holding that the first sale doctrine did not apply to foreign manufactured copies purchased abroad. But the Supreme Court simply affirmed the decision without an opinion, and in a 4–4 split. Because of the 4–4 split, and also due to the lack of an opinion, the case will not be seen as precedent-setting.

Now that the case has been remanded to the district court for further proceedings, the tables have turned on Omega. The district court found that Omega’s conduct of using the copyrighted design to control the importation and sale of its watches, as the watches themselves could not be copyrighted, was a misuse of Omega’s copyright. The court found that Omega wrongfully leveraged its limited monopoly in its design to control the importation of watches bearing that design. Thus, the court granted summary judgment in favor of Costco, ending the case—for now. We predict that we will see another appeal.

Supreme Court Affirms that the Bayh-Dole Act Does Not Result in Automatic Vesting
The 1980 Bayh-Dole Act paved the way for federally-funded University research programs to license their technology to the private sector. In Stanford v. Roche, the Supreme Court ruled that the Bayh-Dole Act did not automatically vest title to federally funded inventions in federal contractors or authorize such contractors to unilaterally take title to such inventions. The case involved a Stanford researcher, Holodniy, who signed an agreement that he would “agree to assign” his inventions to Stanford. In a technology exchange, Holodniy then went to Cetus, a research company, to study a technique called PCR. Cetus required Holodniy to sign an agreement stating he “will assign and hereby does assign” his inventions to Cetus. While at Cetus, Holodniy developed a PCR-based measurement method for determining HIV levels in blood.

Upon his return to Stanford, Holodniy tested the procedure, and Stanford secured three patents to the measurement process. Roche then acquired Cetus’s PCR intellectual property. Roche commercialized its HIV testing kit, and Stanford sued Roche for infringing its patents. The Supreme Court held that the “does assign” language trumps the “will assign” language, and thus Holodniy’s inventions belonged to Roche, not Stanford. The Court rejected Stanford’s argument that Bayh-Dole automatically vested Stanford with title to Holodniy’s invention.

The lesson to take from this case is that assignment language is very important. Companies should use language similar to what Cetus used, rather than what Stanford used. This would apply not only to patents, but any intellectual property.

Supreme Court to Revisit the Standard for What is Patentable

In the Bilski case, decided in 2008, the Supreme Court expanded the scope of what is a patentable process. Specifically, it held that the test for patentability is the (1) ordinary meaning of “process” used in Section 101, qualified by (2) the three exceptions that the Supreme Court has established, namely, “laws of nature, physical phenomena, and abstract ideas.” But the Supreme Court gave little guidance as to how lower courts should conduct the analysis.

The Court is now considering Mayo v. Prometheus, to address the following question: whether or not a patent claim that covers observed correlations between blood test results and patient health, so that the claim effectively preempts all uses of naturally occurring correlations, simply because well-known methods used to administer prescription drugs and test blood may involve “transformations” of body chemistry, is patentable subject matter. We expect a decision sometime in the first half of 2012.

Supreme Court to Decide Patent Appeal Standard of Review for Rejected Patent Applications
In Kappos v. Hyatt, the Federal Circuit issued an en banc decision holding that in an appeal of a patent office rejection before a district court, the Applicant may present new evidence, which the district court must review de novo (without deference to the patent office findings). The Supreme Court will address this issue. This is important as patent applicants may have more options to appeal their rejections.

Federal Circuit to Decide Joint Internet-Type Patent Infringement
In two separate cases, Akamai v. Limelight and McKesson v. Epic, the Federal Circuit will en banc decide infringement liability when multiple parties collectively perform separate steps of a multi-step process, but no single entity performs all the steps. The panel in Akamai held that there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps. Oral argument has already been held, and a decision is expected within the next few months. This is an important issue where it takes more than one person or group to infringe a patent, such as found in many business-method type Internet patents.